By: Jay Feldman
Whether founders grow their business for years or scale quickly and pass the baton, that transition requires a great deal of careful planning. “Exiting a business profitably rarely happens by chance,” says Jay Jung, president and founder of Embarc Advisors. “A well-executed exit typically requires years of strategic decision-making.”
Strategic Finance Consulting Can Help Maximize a Business’s Exit Value
The process of exiting a business is not just about the numbers. Business owners should prepare a comprehensive strategy for how the exit will be handled, including succession planning and mitigating unexpected issues that may arise. Without a thorough exit strategy, there’s often a risk of leaving money on the table.
Jung advises business owners to start strategizing for their exit early. “An exit shouldn’t be a rushed decision. Private equity firms often approach investments with a five-year horizon, and similar preparation can benefit your exit. With sufficient time, you can refine financial records, reduce operational risks, and explore growth opportunities.”
Exit planning begins as business owners craft a compelling narrative. “A strong story can drive interest among potential buyers,” Jung notes. “Start with a concise two-page teaser, followed by a detailed yet focused confidential information memorandum. Balancing clarity with depth helps maintain buyer engagement.”
During the preparation period, founders can develop financial models demonstrating customer retention, revenue concentration, and other key metrics to support a narrative that highlights their business’s financial stability and growth potential. Involving the company’s CFO in this process often helps streamline the sale.
In this financial narrative, the key is to strike a balance between growth metrics and profit margins. “While growth often commands higher valuations, optimizing margins as the exit approaches can further strengthen your position,” says Jung. “A dual focus on scaling revenue and improving efficiency may enhance appeal to buyers.”
Sellers may also increase the value of the sale if they demonstrate that the business is not overly reliant on the founder. Buyers generally prefer companies that can operate effectively after the founder’s departure.
M&A Advisory Services Can Influence the Sale Price Through a Quality of Earnings Report
Before a sale, buyers often request an independent analysis of a company’s financials. Typically, this is provided in a Quality of Earnings (QofE) report, which evaluates the company’s customer base, recurring revenues, and profit margins more deeply than standard financial statements.
The QofE report aims to outline a business’s earning potential and sustainability. A well-prepared report can support the asking price and reduce the likelihood of renegotiations.
“A QofE report shouldn’t just highlight strengths—it should provide a balanced assessment to facilitate a fair valuation,” Jung observes. “Normalized adjusted EBITDA is a critical metric for buyers, and a QofE can identify opportunities to improve it, potentially boosting valuation.”
Proactively conducting a QofE often delivers strong returns in the exit process. According to Jung, each dollar of EBITDA may be valued between roughly 6 to 12 times during an exit, depending on market conditions.
Strategic Finance Consulting Supports Businesses in Building a Solid Financial Foundation for an Exit
Sellers can prepare for a successful exit with a thorough audit, helping to identify and resolve potential issues before buyers do. Clean and accurate financial records tend to instill confidence in buyers.
“Buyers typically look for a stable customer base, consistent growth, and sustainable revenue,” says Jung. “Structuring services with long-term contracts or subscription models can demonstrate predictable income, while diversifying revenue streams may reduce dependency risks.”
As sellers plan for their exit, managing business debt carefully is advisable. An overleveraged company could appear distressed. Additionally, transactions often assume a “cash-free, debt-free” structure, meaning sellers may need to settle outstanding debt at closing. Debt can affect the net proceeds that sellers receive.
“An experienced financial team can provide valuable guidance as you prepare for an exit,” Jung remarks. “Their expertise may help refine financials and optimize valuation.”
M&A Advisory Services Can Guide Businesses in Structuring Achievable Earn-Outs
Contingent payments made after a deal closes, known as earn-outs, are often tied to predetermined financial targets.
“When structuring earn-outs, aim for realistic targets that align with your company’s growth trajectory,” Jung advises.
To define earn-out conditions, sellers should specify performance metrics, timelines, and calculation methods in the purchase agreement. During exit planning, sellers can assess company performance against these targets.
Mergers and acquisitions can be complex, and thorough due diligence is essential to minimize surprises. This is where experienced M&A advisors often prove invaluable.
During negotiations, sellers and their advisors leverage insights from due diligence and QofE reports to seek a fair sale price and earn-out terms. The goal is a valuation that reflects the business’s true potential.
As Jung explains, a business exit can be a founder’s most significant transaction. “You’ve invested years into building your business—approach your exit with the same diligence. Starting early and establishing a solid financial foundation may help you maximize the return on your hard work.”
Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal, financial, or professional advice. The views expressed reflect the opinions of Jay Jung and Embarc Advisors and may not apply to every business or situation. Readers are encouraged to consult with qualified financial and legal professionals to tailor exit planning strategies to their specific circumstances before making any decisions related to mergers, acquisitions, or business sales.
Published by Joseph T.
